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You need to adjust the sharpness in the NVDIA Control Panel instead.
i tested every single upscaler and found one setting that makes this game crisp even tho it doesnt makes sense to me
i set the framerate to 44.99fps and and used dlaa + frame generation, the game runs extremely smooth and crisp.
if i set the 44.99 to 60 or higher for example the game becomes super blurry for what ever reason.
xess1.3 quality looks better than dlsss quality, im pretty sure the recent nvdia update does not work as intended.
That really sounds like dynamic scaling is on, if a lower target fps made the image clearer. If you really turned it off, perhaps it didn't register. Try turning it back on, then off?
If that doesn't work. Perhaps try an integrity check. Or just completely deleting and re-installing. Delete the shaders too in appdata/local/squareenix/Final Fantasy XVI.
EDIT: While you're at it, read my post below first. There's something else you should do too, delete the config file.
If its not some type of error, and you really find the image just too blurry, how its intended. You could use DLDSR to render at higher internal resolution. You'll find it in the nvidia control panel, select 2.25 (at the very top) then change your resolution how you normal would to 4k.
There's a slider right under it (In the control panel) that controls sharpness, keep it all the way to the left. Since you're at a higher resolution, when you use dlss, go one or two settings below what you usually use, for performance reasons. You'll should still find improved image quality. The only thing I'm worried about with this solution is vram. If you find stuttering, try using legacy scaling instead, it still looks pretty good with dldsr on.
You could try turning sharpness up on your monitor or use reshade to add sharpness filter. There are lots of them to choose from. I heard from one person that reshade caused him performance issues, but I've been using it without issue.
But really it sounds dynamic scaling is somehow on.
I didn't see anything labelled dynamic scaling in there, but its still possible one of those flags controls it. Perhaps the one that just says "super resolution" but idk. Best bet is to delete it and have the game recreate it. If it doesn't, do that reinstall, which you should do anyway.
Also, you did disable all those effects in game like bloom and vignette, chromatic abberation, motion blur, all that stuff?
This game seems to be the first one ever to have better FSR implementation than DLSS.